Nation's Food Prices Endangered by California Drought

The serious drought in California has raised concern about higher national food prices and another upward nudge for inflation because California is this country's most important food basket.

California produces a quarter of all foods consumed in the U.S. and 40 per cent of the vegetables. And what is shaping up as the state's driest year on record, following its third driest in 1976, comes on top of a killer freeze in Florida that wiped out much of the vegetable crop there.

But economists at the Bank of America, a major agricultural lender and the world's largest bank, cautioned that it is too early to predict a disaster, and point out that the effect of the drought varies considerably throughout the state, with many prime producing areas still expecting excellent harvests.

A 0.5 per cent jump in the consumer price index as a result of the drought is the most expected now by Eric Peter Thor, who watches the California economy for the bank. He thinks that in a year this could turn out to be a "temporary blip" if the rains finally arrive.

For the July 1-Jan. 28 period to date, California's North Coast and Cascade-Sierra areas have received 35 per cent of their normal rainfall, the Sacramento Valley has gotten 44 per cent of normal, the San Joaquin Valley and Central Coast have 85 per cent of normal moisture, while Southern California coastal and interior regions have more than 110 per cent of normal moisture.

Water rationing measures are getting better than expected results. In Marin County, north of San Francisco, cutbacks in the first week of mandatory conversation dropped consumption almost 60 per cent below a year ago, to 10.4 million gallons aday, well below the goal of 12 million. Other counties are considering formal conservation plans, and voluntary conservation is in effect in most of the state.

"I don't see a diaster overall because some areas of the state will have a very good year," says Richard H. Courtney, the director of Commodity Research for the Bank of America.

Water supplies remain ample and some large than usual yields are expected in Souther California's abundant Imperial Valley, famous for many specialty fruit and vegetable crops, the vegetable producing areas north of Los Angeles and the region around Salinas in the middle part of the state where crops such as artichokes and asparagus are grown for the entire U.S.

"Farmers down in Southern California think it's going to be a great year, and they think prices will be up 30 per cent with no reduction in acreage," says Courtney. "ANd the Drought Coordination Center in Sacramento says a lot of people are calling from out-of state asking where they can buy vegetables because of the effects of the Florida freeze."

On the other hand, the prospect of a 25 per cen reduction in water supplies to parts of the state's central and northern areas is expected to have a considerable impact on production of cotton, rice, and tomatoes which are all water pensive! And wine grape production is also expected to be affected.

Cattle raising and dairy farming, totaling nearly $7 billion in annual gross receipts for California, depend heavily on dry land grazing to feed herds and these activities are already shaping up as the state's hardest hit sector, as they are in other drought-plagued regions in the western states.

Culling of herds is now moving cattle to market which would otherwise be kept feeding. This is dropping prices of beef in the short run, but higher prices are predicted for the future when the supplies will be reduced.

California also accounts for 24 per cent of this country's rice production, almost all of it for export, and this thirsty crop is expected to drop significantly in acreage, as are forage crops like alfalfa and corn.

California grows 85 per cent of all tomatoes canned in the U.S., so tomato processing is also expected to suffer, adding to the higher prices that resulted from last year's cannery strike and settlement.

Because of higher prices, the Bank of America economists expect gross farm receipts in California to rise to a record $10 billion, but increased production costs are expected to cut net income of farmers below last year's $2.5 billion.

Already the drought is affecting some nonagricultural industry, primarily the winter recreation areas, where the lack of snow has kept away skiers. And boating enthusiasts may also find their favorite reservoir lakes unavailable this summer with effects on surrounding economies.

Because of a cut in electricity produced by hydro-electric plants, the water shortage will probably also increase the state's import bill for fuel oil.